FEBRUARY 2008 - Performance
appraisals are a reality in organizations of all sizes and types.
The process may take considerable time on the part of supervisors
and may require subordinates to gather reams of information and
prepare descriptions of their own performance. Some take the process
very seriously, while others simply see it as a burden. Supervisors
must be careful how they deliver the results, and subordinates must
be careful how they respond. Relationships and trust may become
permanently strained due to misunderstanding and miscommunication.

An
effective system of evaluating job performance should accurately
outline employees’ responsibilities and contributions to
an organization, motivate employees, and provide valid and important
input in personnel decisions. However, employees often find the
evaluation system ineffective, and frustrations with their appraisals
can lead to discontent, apathy, turnover, or, worse, lawsuits
due to real or perceived unfairness. Furthermore, many may find
that they are wasting time on administrative matters, and become
cynical and unmotivated in the process if they sense that the
evaluations do not really matter.

The following
survey asked accountants working in government, industry, and
public accounting about their perceptions of performance evaluations.
Participants were asked general questions, including how often
they receive evaluations, whether these evaluations are written
or oral, and the relative importance of certain factors in their
evaluations. In addition, the survey asked how important respondents
believe performance evaluations are for key compensation and promotion
decisions. The answers to the latter question may be surprising,
especially for employers and employees who may perceive the evaluation
process differently. It may be time for organizations to reevaluate
whether their systems are meeting their needs and if their efforts
add as much value as expected.

How
Often Should Performance Evaluations Occur?

Best practices
suggest that employees receive performance evaluations at least
once per year, but is that really enough? The survey’s first
question was how many times per year respondents receive performance
evaluations. The answers ranged from zero (typically from those
in organizations with three or fewer employees) to 13. The participants
were then asked how many evaluations they would like
to receive per year. Interestingly, employees who received three
or fewer performance evaluations annually wanted more. Moreover,
respondents generally indicated they wanted one more than they
had had. Those receiving four or more per year, on the other hand,
wanted fewer performance evaluations. (In fact, the one participant
who received 13 performance evaluations annually preferred to
receive zero.)

Finally,
the survey asked how satisfied respondents were with the frequency
of their performance evaluations. Consistent with their stated
preferences, those respondents receiving three or four performance
evaluations per year were significantly more satisfied with the
frequency than those receiving more or less. Despite the participants’
clear preference for three or four performance evaluations per
year, approximately 75% of the sample group received two or fewer.

The authors
also asked how frequently performance evaluations included written
and oral communication. Across all types of organizations, evaluations
included written communications only about half of the time, while
oral communications took place most of the time. The survey revealed
that participants’ level of satisfaction with the format
of their performance evaluations was higher when the frequency
of written communication was greater. It is not clear from the
survey why this is so; however, one possibility is that written
evaluations provide a more comprehensive, uniform feedback mechanism.

What
Skills Matter the Most?

One aspect
of performance evaluation is providing employees with performance
feedback. Such feedback should reinforce the link between employee
performance and employer expectations. As such, employers should
consider which aspects of performance employees perceive to be
the most important, to see if employees’ perceptions match
with organizational expectations. Exhibit
1 shows the average weights respondents attached to a number
of different skill areas, arranged by sector.

In this survey,
participants assigned a rank of 1 to 8 to each skill area, with
8 being their perception of the most important skill at their
organization. The authors named seven specific skills and gave
participants a chance to write in other factors considered important
in performance evaluation at their organizations.

As shown
in Exhibit 1, technical competence ranked highest in relative
importance among the skills surveyed for all four types of organizations.
Interestingly, public accountants ranked technical competence
significantly lower than respondents from the other three sectors.
It is possible that technical competence is more consistent across
practitioners in public accounting than among those in other sectors.
If this is the case, other factors, such as interpersonal skills
and the ability to gain business, likely begin to separate one
employee from another in important personnel-related decisions.

Six participants
ranked “other” as most important. The other factors
written in as important were “ability to the get the job
done,” “achieving results,” “adding value,”
“cost reductions,” “customer service/good results,”
and “integrity.”

Consistent
with many similar surveys, interpersonal skills were a strong
second place for all types of organizations, followed by oral
communication skills. There were no statistically significant
differences between any of the groups relative to these communication-related
skills.

The ability
to gain new business was a significantly different factor across
different types of organizations. Because accounting is a support
department in most types of organizations outside of public accounting,
bringing in new business may not be part of the typical accountant’s
job.

Government
employees perceived that their employers attach less importance
to performing their jobs within time budgets than in other sectors;
all other sectors considered this factor relatively important.
One might expect time budget performance to be valued most in
the public accounting environment, yet the increasingly competitive
business environment may have changed things.

Does
Performance Evaluation Matter?

The survey
asked participants to indicate how important performance evaluation
is for the two following purposes: determining compensation levels
and determining promotion potential. Exhibit
2 summarizes the responses to these questions.

The results
are surprising because of the rather lukewarm nature of the responses.
While generally over half of the participants in each type of
organization indicated that performance evaluation is important
for compensation and promotion, a surprising number did not agree.
Around one-third of the respondents did not perceive performance
evaluations to be important for compensation or promotion decisions,
or they were unsure. Among public accountants, around half did
not think performance evaluations were important for compensation
or promotion. Therefore, either their performance evaluations
do not matter in the decisions that affect these respondents,
or they simply did not see the link.

One might
expect that perceptions of the importance of the performance evaluation
process would differ depending upon participants’ position
in the organization (i.e., nonsupervisory; lower and middle management;
or upper management and ownership). Statistical tests did not,
however, show this factor to be an important discriminator in
the responses. If performance evaluations are not the most important
input into compensation and promotion decisions, then what is?
It would appear that other, less formal aspects of an organization’s
culture are seen as more important. It is also likely that some
of the individual factors, such as the ability to gain new business,
weigh more heavily than other factors at certain types of organizations
(such as public accounting) when assessing suitability for promotion.

Summary
and Implications

Across all
sectors, respondents were the most satisfied with a frequency
of three to four evaluations per year. Respondents were more satisfied
with their performance evaluations when they included written
communication.

Accounting
practitioners of all types viewed technical competence as highly
important for performance evaluation purposes, but communication
skills were important as well. Although time budgets are often
most highly associated with auditing, public accountants did not
attach any higher importance to them than did other respondents.
Perhaps the increasingly competitive marketplace has made the
ability to perform one’s job within time budgets important
across the entire private sector.

Surprisingly,
respondents did not think performance evaluations were important
in determining compensation and promotion decisions, especially
in public accounting. Undoubtedly, performance evaluations rarely
capture everything relevant in assessing employees’ performance
and their contributions to the organization over a period of time.
Often, evaluations are forced into standard, predetermined formats
that may omit important aspects of performance.

Although
one must be careful in interpreting the results, due to the small
sample sizes, the organizations represented in this survey invariably
encountered one of two situations. On the one hand, perhaps performance
evaluations really are key inputs into compensation and promotion
decisions, but accountants simply do not perceive them as such.
In this case, management must more effectively communicate the
link between evaluations and key decisions.

Alternatively,
respondents may be correct in their perceptions. This would suggest
that organizational values have shifted since the performance
evaluation systems were developed. If such a shift is strategic,
the organization should update the evaluation system and criteria.
It could also indicate superiors are rewarding behavior that the
organization does not value; however, there is no direct evidence
of this in the data. For example, a superior could reward an employee
with a raise or promotion for unethical behavior that helps the
unit reach organizational goals (e.g., questionable revenue recognition
to meet sales growth targets). In this case, employee dissatisfaction
with the performance evaluation system could be a red flag that
warrants further investigation.

Considering
the time that many supervisors must spend completing their assessments
of subordinates’ performance, reviews should accomplish
more. An ideal performance evaluation system would provide a key
means of communicating whether employees are successfully aligning
their efforts with the organization’s goals. Evaluations
should reflect employees’ contributions and performance,
and motivate them to improve. Key judgments, such as whether an
employee should be promoted, should flow from the evaluation.

When management
assesses an organization’s performance evaluation system,
it should consider the following questions: How frequent are performance
evaluations? Are employees satisfied with this frequency? How
closely are performance evaluations tied to important personnel
decisions, such as compensation and promotion? If employees do
not perceive much impact on their paychecks as a result of evaluations,
then the system may not be effective. Additionally, if the evaluation
does not tie in with organizational goals, linking decisions to
performance evaluations will not properly motivate employees.

Although
there may be no way to capture everything important in any system
of performance evaluation, considering the benefits of an effective
system and the costs of a bad system, creating a system that encompasses
the needs and expectations of most employees is worth trying.

Based on
the authors’ review of websites and prior research (see
the Sidebar),
the following list of questions reflects factors that seem important
for an effective system:

Are expectations
clearly set and communicated for all positions?

Are data
gathered systematically throughout the evaluation period, rather
than all at once at the time of the formal evaluation?

Are evaluators
familiar with the nature and importance of an individual’s
job duties?

Does
the organization take reasonable precautions to protect against
evaluators’ biases?

Do employees
view their evaluations as fair?

Do the
evaluator and the employee agree on a program for improvement?

Are employees
praised for a job well done?

Are compensation
and promotion decisions linked to performance evaluations? Do
individuals understand these links?

Is the
organization measuring what was intended?

Where
appropriate, are such factors as initiative and teamwork recognized
and rewarded?

Are important
performance dimensions communicated up front and consistent
with the evaluation?

Looking
Deeper

Due to considerable
research in accounting, psychology, and organizational behavior,
many sources provide information regarding the various aspects
of performance evaluation. The following is a brief discussion
of a few thought-provoking examples that readers may want to investigate
further.

The University
of Texas provides a website with a best-practices guide for its
supervisors (www.utexas.edu/hr/er/perfeval/index.html).
It encourages supervisors to clearly set and communicate expectations
for every position, gather data, and communicate on an ongoing
basis how well employees are meeting expectations. It stresses
that performance evaluation is not a one-time event and that supervisors
should gather data about employee performance systematically throughout
the year. The
website contains links to a sample performance record and a coaching
and counseling log. The coaching log calls for supervisors to
record the date that specific feedback information is shared with
an employee, the employee’s comments, and agreement as to
the appropriate action items.

Bacal and
Associates, a business and management training and consulting
company, has a very useful website (www.performanceappraisals.org/appraisal-library/index.html)
that refers to a number of books and articles authored by Robert
Bacal and hundreds of other articles by unaffiliated authors.
The site has a link to introductory information from Toolpack
Consulting, which briefly discusses problems with traditional
performance appraisals and offers fee-based custom-designed services.
Toolpack Consulting provides a brief discussion of current practices
aimed at more effective appraisals, including peer review, self-review,
upward assessment (evaluating one’s manager), and “360-degree
review,” in which one receives feedback from supervisors,
subordinates, and peers. The company suggests involving the affected
employees in the design of any new system. Employees
should know what is expected and buy into the system.

One caveat
often noted by experts is that just because one approach works
at one organization, this does not mean it will automatically
work at another. A wealth of information is available for organizations
to draw upon. The success of any initiative may depend upon the
effectiveness of its delivery. Any system needs to fit an organization’s
strategy and culture. Performance evaluation systems are important
for all kinds of organizations, but they are never perfect. As
in all business processes, continuous improvement is needed if
performance evaluation is to be of value.

Thomas
S. Clausen, PhD, CPA, is an assistant professor of accounting
in the department of accountancy at the University of Illinois at
Springfield. Keith T. Jones, PhD, CPA, is an assistant professor,
and Jay S. Rich, PhD, CPA, is an associate professor, both in the
department of accounting at Illinois State University, Normal, Ill.

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